In earlier systems, passwords were stored in the file
/etc/passwd and they were not encrypted.
After the user is created, an entry gets recorded in /etc/passwd with 'x' in the second column instead of the acutal password.
$ useradd timmy
$ cat /etc/passwd
timmy:x:1002:1003::/home/timmy:/bin/sh
For security reasons, passwords are now stored in the file /etc/shadow and they are encrypted. Password was not set initially, when the user was created. This is indicated by !! mark (in RedHat, ! - Debian)
$ cat /etc/shadow
timmy:!!:15870:0:99999:7:::
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